The Grass is Greener Problem in Australia

The grass is always greener syndrome appears to be alive and well for Australian real estate investors. Several firms are advertising in Western Australia highlighting eastern states property investment opportunities. While at the same time strong growth rates in Melbourne, Queensland and NSW mean that some eastern states investors are viewing Western Australia as affordable in comparison.

Ultimately of course this will even out the rental yields between the main eastern cities and Perth. In the interim beware the usual long-distance scams: such as paid trips to inspect properties and convenient lawyers and valuers. The Gold Coast scams have died down in recent years but no one should be as naive to believe that the “free” trip is not more than paid for by any property you buy. Legal and other advice you seek should be truly independent: which does not mean recommended by the property developer, however convenient that might be!

Latest research provides the following average rental yields (units) for Australian capital cities:

• Darwin 6.09%
• Canberra 5.92%
• Sydney 5.32%
• Melbourne 4.80%
• Brisbane 4.86%
• Adelaide 4.42%
• Perth 4.19%

(RP Data Research)

The benchmark yield for Australian investors is over 5.5% to get a balanced return after tax losses. However its dangerous to over simplify property markets, and a trap particularly easy to fall into from a distance. Urban Perth extends 25km south and 30 north of the central city area. When considering any market an investor should be clear as to whether their focus is on rental yield or long-term capital gain. Very, very few properties will provide both.

Comparing average city-wide yields is always highly misleading. It is much better to compare similar inner-city locations when looking for the best yields in capital cities. Perth’s suburb with the best unit yields is Glendalough with 5.4% was a better average return than all but 3 of Melbourne’s top suburbs. Glendalough’s average price is $430,000 while South Melbourne with a similar yield in Melbourne is over $680,000 – an initial investment of nearly 50% more. Glendalough offers much more affordable rents compared to South Melbourne too. Yield is only part of the equation and its necessary to juggle a number of factors to

One of the benefits of Australia’s diverse property market is that different states are in very different parts of the property cycle. While Perth has only recently enjoyed strong, accross the board price growth, while Melbourne has had flat prices for most of the last 5 years.

If you are contemplating far-away grass, or brown earth as is often the case in Australia, then be aware of the different tax regimes. One of Western Australia’s negatives for investment is its high rate of stamp duty. An off-the-plan apartment purchased for $600,000 in Melbourne would incur stamp duty of approximately $2000 compared to nearly $30,000 in Perth.
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